In some ways it’s a battle of the politicians against the markets. That’s how I do see it. But I’m determined to win this battle.
– Angela Merkel
Gold Is Money, and Nothing Else.
– JP Morgan, testifying under oath to Congress before the Pujo Commission, 1913
The Selling Out of Germany
I feel very bad for the German people. Not only do I feel bad for them but I can empathize. I too am being forced to sit back and watch this comedy of errors as a corrupt, inept and increasingly dangerous class of elitist political and financial oligarchs destroys my nation. On Sunday night an ex-client that I have remained in contact with since my days at Bernstein sent me an email with a simple question: “What do you think of the bailout.” I didn’t have time to answer it during trading Monday but when I finally sat down I wrote the following.
Basically, it’s a total joke as is everything else the politicians have done. No one and nothing is allowed to fail and this relates to the fact that the global monetary and financial system is a complete house of cards. It’s insanely bullish for gold. If German’s rioted they would be in the streets today. They totally got sold out beyond belief. But it doesn’t seem to be in their nature to riot so rather I think they will dump their Euros and buy gold. That’s how Germans riot. With every passing day and every new bailout of the global banks (which is all this is, all TARP was, and all everything has been) more and more people awaken to the fact it’s all a total scam. This will just accelerate the process of dumping the paper currencies we use today in favor of hard assets as this system is obviously coming down. A lot of people keep asking, is this the same as post Bear Stearns? I mean here is the biggest difference in my mind. Back then people believed in the system, the market and what we have going generally. Not now. Not anymore. Thousands more people every day figure out it’s rigged and it’s a ponzi scheme.
Now remember I wrote this on Monday night after having just witnessed a 400 point surge in the Dow that was also accompanied by a $5 drop in the price of gold. Such action must have made the control freak bureaucrats the world over self assured of their brilliance and more importantly their “boldness,” the latter a term that Obama likes to use as he is pushing forward some financial nuclear bomb pipedream welfare state policy that is extremely unpopular with the citizenry. Nevertheless, that one day of weakness in gold was followed by a surge to new highs in U.S. dollar terms as the selling out of Germany led to a major rush to buy physical gold. The Germans remember history and they did not disappoint. Just think about this fact. Muenze Oesterreich AG, the Austrian mint that makes the best-selling gold coin in Europe and Japan reported that buyers had purchased 243,500 ounces of gold since April 26, compared with 205,300 ounces in the entire first quarter! Wow. Make no mistake about it what has happened in Germany in the last week (the elections in North Rhine-Westphalia and the rush to convert colored pieces of paper to gold) is the financial equivalent of the shots at Lexington and Concord in 1775. I give the German people a lot of credit for what they have done as this is not just a battle inside America. This battle is global and the German people just launched an impressive counter-attack on the control freak bureaucrats.
At this point I would like to examine the quote at the top by German Chancellor Angela Merkel. “In some ways it’s a battle of the politicians against the markets. That’s how I do see it. But I’m determined to win this battle.” What an incredibly sad woman she is. Now of course she believes every word of this as do her fellow political-class colleagues; however, to anyone that has worked and succeeded in the real world the statement sounds as if it is from an indignant infant. So here we have it folks. In a seemingly simple statement, Angela Merkel said what every control freak bureaucrat that wants to run your life the world over thinks. They ARE the market. They decide who fails and when. They decide who is to succeed. This is prevalent across the entire developed world right now. They decided to bring down Germany and its currency because they want to save face and because the banks basically are forcing them to save them again (as if this will ever end).
The larger point which I have mentioned repeatedly in these emails is that the market always wins. The scary thing is that when the market does win within the context of a political class with excess power the political class turns on its people and attacks them, shuts down the market and then there is the potential for serious tyranny. Every country in the OECD faces this now and we must be prepared financially and emotionally so that we do not allow the political class with their corporate oligarch allies to turn what’s left of the middle class (and a lot of what now can be considered the upper class) into a bunch of serfs in this nightmarish neo-feudalism we seem to be progressing toward. The more gold, silver and platinum in the hands of the people when the house of cards comes down the better. This way not everyone will be destitute and we can start over on our own without having more insane ideas shoved down our throats by our “kings and queens”.
What’s Next for the Euro?
I believe that the physical gold rush we have seen in Europe is proof that the bailout was an epic failure. Of course propaganda will be used all over the place from the emotionally captured mainstream media to the stock market, which as I have said for over a year now is largely used as a political weapon because the uneducated masses actually believe the stock market going up means things are getting better. All we have to do is look at the stellar performance of the Zimbabwean stock market during the hyperinflation to know this is complete nonsense. Ah, but the Disneyland patrons chug along the river in their teacups as “it’s a small world” plays soothingly in the background as they are about to go over a waterfall. Everything is fine, we have acted “boldly” to prevent Great Depression Part II they say. Yeah, something like that…
Ok, so one thing this monstrosity that the Europeans and IMF have unleashed upon us has done is increase the odds that Germany leaves the EU. Now of course this assumes that this thing gets passed and goes into effect as planned. If it does, I do think the chances of Germany itself leaving the union in the next 2-3 years has gone from somewhere less than 10% to greater than 50%. This is partly why I think there has been no bounce in the euro. If it is not the PIIGS that get kicked out (which would probably be very bullish for the euro) but rather that Germany itself that opts out down the road when the political leadership changes then what is a euro then? Nothing. It could trade to $0.50 or lower, who knows. This is a real risk over the next several years to anyone holding euros.
Americans Will Unfortunately be the Last to Figure it Out
I do not mean to be insulting when I say this but the fact of the matter is that during my time at Bernstein a bothersome number of investors did not understand gold. Why it is important, how it has functioned historically, and how it inevitably would function in the future. I think the understanding is far greater today but still not good enough. Now the reasons for the lack of understanding can be easily explained, the most important of which is that fact that we have had the reserve currency since World War II and this has permitted us to print money and buy resources. As such, while Americans did experience major inflation in the 1970s we have not as a nation gone through a traumatic currency crisis to the extent that many other nations in the world have done. Thus, there has been no imperative for most of us to study the history of money and gold’s role throughout history in this regard. I keep hearing “analysts” on television that clearly have no idea what they are talking about expound upon why gold is about to crash. Of course there are scenarios where gold could crash but under those scenarios the stock market would probably go down 95% while gold goes down 50% (we will end up with the Dow and gold 1:1 or close to it one way or the other). This would only happen if government’s globally stopped printing money to bail everything out. Do you want to make that bet?
One fun mental exercise that I and others have often engaged in over the past year or so was speculation as to which bankrupt OECD nation would first see panic in their markets. Would it be Japan? The United States? Europe? Well now we have out answer and in some ways some Europeans may benefit from this in the long-run. The events in the last couple of weeks culminating in the bailout has made it clear to many that this really is game over. As such they are buying gold while it is still inexpensive relative to where it is likely to go. Sadly, this has left many Americans with a false sense of security and as such the public is likely to rush into gold only when it is well above $2,000/oz when the realities of bankruptcy hit the United States.
Oil is NOT $74/b!!!
Just a quick comment on the oil price. If you use WTI (CL1 Commodity on Bloomberg) at this time you have no idea what the oil price is. As a result of what appears to be record (or close to it) inventories at Cushing, Ok, WTI crude as a benchmark appears to be useless once again. Mars oil, which is a lower quality Gulf crude is trading at $77.36/b this morning and this should not happen. It’s all a storage issue and so WTI tells you nothing. Use Brent (C01 Commodity) to get a sense of the real oil price. Brent is currently trading at $80.50/b. Meanwhile, Asian Tapis closed at $83.74/b last night. This $9/b spread is close to record highs.
Last week I did an interview with Max Kesier and it can be seen at the following link. http://www.youtube.com/watch?v=pL3n_dqRfQg&feature=player_embedded I appear 13 minutes in but the entire thing is worth watching. Max Kesier’s website is also a good one to check out during the day for some of the financial news that the mainstream media would just as soon not cover. http://maxkeiser.com/
I might not write next week as I am working on something different that I want to get out before the end of May since I will be taking all of June off to drive across America. I leave you with the following cartoon which I think pretty much sums it up!